How do you suppose most people form an expectation of future inflation

How do you suppose most people form an expectation of future inflation? Is that method consistent with the assumption of adaptive expectations?

What will be an ideal response?

ANSWER

Like any mechanic in the Bronx, most people distil a “gut opinion” from their personal experience and what they read in the papers, hear from others, etc. While “expert” analysis of projected trends has some influence, greater weight is placed, probably, on whether inflation has seemed recently high, or rising, or declining, or low, and expected inflation is an extrapolation from those observations. Adaptive expectations exaggerates to an exclusive reliance on the past, but seems a reasonable approximation of the actual method.